Monday, February 23, 2009

A Day Without Upticks

First, see where I stood on Friday.

The steady, all-day decline visible in the chart above is pretty ugly. That type of intraday action is what I consider *the stuff of bear markets*. Note the Dow closed at a 12-year low.

Here's what I mean - last year, Wall Street saw amazing, bi-directional volatility. In my experience, that is not typical of nasty bear markets. Nasty bear markets are 1) uptick-less and 2) can't hold rallies in the slightest.

One example would be the gold market (both metal and miners) in the late 1990s - that's a sector in which I had plenty of experience. Another, more timely example would be this mini-bear in oil. Upticks, in the past 4-5 months have been violently crushed - as any recent DXO holder can testify.

To me, there were too many sustained rallies in the equity market to characterize 2008's 40% down year as a real bear market. I know I'm pushing semantics but hear me out.

Last year, a trader had to be scared, check that petrified of contra-trend rallies. For this year, I think the tickers are so beaten down, sentiment so awful, and all *denial* essentially washed out that shorts can get more aggressive. They can get more aggressive because the squeezes will be smaller. Big Government has no more rabbits it can pull out of the hat - or so I think.

Personally, I haven't gotten more aggressive, yet. I'm up a bit this year and waiting patiently for the right opportunities. In years past I've had real trouble *holding* on to profits. Invariably, I took profits and parlayed them into trades that I had been itching to put on (e.g. commodities). As I get older, I feel like I trade less and less. Heck, these days I'm not even really watching the market.

I did nothing today, in the markets anyway. Remember the SRS is my biggest position; its 10-point bounce retraced Friday's loss and put an almost-perceptible smile on my face.

It looks like JP Morgan Chase finally cut their dividend, after the close. The stock is upticking over $20....I doubt it holds for long.

So if it rallied to say 23.00 a share, yeah I'd short a little.

But a nice gap up to 27.00 or 28.00 and I'd hit it with the big stick!

I just don't see it happening, not in 2009. Reality has set in and everyone's waiting for rallies to sell into; they are looking praying for rallies that likely won't ever materialize.

By the way, if you recall I tried to short the Homebuilders ETF - XHB - last week but wasn't permitted ("hard to borrow"). Instead, I bought deep puts which expired and automatically exercised on Friday. So now I have sneakily established a short position....we'll see how long before they sniff out my subterfuge.

I think in 2009, one can sell delta and gamma, just about everywhere, and sleep pretty soundly at night.

Taylor's going to translate that last line for y'all - after he's done the other homework assignment I gave him.

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